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World food import bill to rise by over 10% this year
Published in SUNS #8481 dated 14 June 2017

Geneva, 13 Jun (Kanaga Raja) -- The cost of importing food globally is forecast to rise to USD 1.318 trillion this year, an increase of 10.6 percent, or USD 127 billion, from 2016, the Food and Agriculture Organisation of the United Nations (FAO) has reported.

In its latest Food Outlook, a biannual report on global food markets, the FAO said the increased cost of importing food is in part a reflection of rising freight costs and higher volumes.

It underlined that the global tendency for higher import costs in 2017 concerns many of the economically vulnerable nations.

The food import bills of least-developed countries (LDCs), low-income food deficit countries (LIFDCs) and those geographically situated in sub-Saharan Africa (SSA) are forecast to rise by more than the global average, with the overall increase amounting to 13 percent in the case of the LDCs, the most vulnerable country group, it said.

"Rising and volatile freight rates were a prominent feature in 2016 and continue to be so in 2017," it added.

For instance, as indicated by the Baltic Dry Index, average shipping charges in the first five months of 2017 were twice as high as in the corresponding period of last year.

Moreover, month-to-month changes in freights during the period January to May 2017 have been pronounced, with falls followed by very sharp increases.

According to the report, taking wheat originating from the US Gulf ports as an example, importers in most destinations are now required to pay, on average, USD 12 per tonne or roughly 5 percent more than they did last year.

As for expected developments at the product level, FAO said the import bills anticipated to undergo the largest absolute increase in 2017 are those for livestock products and for products in the oilseed complex.

Leading the way, the forecast rise in dairy bills amounts to some USD 26 billion, on the back of record global demand and considerably higher quotations. The world dairy bill could approach USD 100 billion by year end.

Stronger international demand in 2017 for vegetable oils could give rise to a record global bill of USD 116 billion.

The combination of higher volumes and higher benchmark prices is also behind much larger bills for meat and sugar, FAO said.

"As for cereals, despite subdued international demand forecast for the current season, unit import costs are set to firm, largely due to the strength in freight charges."

Consequently, the world cereal bill could rise by 9 percent to USD 153 billion in 2017.

The only product category for which global import costs are expected to fall in 2017 is fish - lower forecast trade volumes should drive down expenditures on this food group.

"For most economically disadvantaged countries, higher import volumes of products in the oilseed complex, as well as of sugar, are expected to curb the savings predicted to be made from lower import bills of other food commodities, especially maize."

According to FAO, the US dollar - from which the cost of importing is typically met - has stabilized to a stronger position than last year. "This relative strength of the US dollar is accentuating higher expenditures on imported foodstuffs and putting burden on often scarce foreign exchange reserves."

Having reached a 15-year high at the end of 2016, the US dollar has since fallen relative to major currencies, with the inflation-adjusted index reaching 106 points in May 2017.

Nevertheless, the US dollar remains historically strong, rendering the cost of importing food expensive - as most commodity prices are US dollar-denominated.

This is particularly the case for numerous major food importing LIFDCs that import more than USD 1 billion worth of food annually and, from May 2016 to May 2017, incurred sharp currency falls against the US dollar.

Many of them, especially those situated in Africa, have experienced percentage depreciation exceeding double- digit levels, FAO observed.

FORECASTS FOR MAJOR FOOD COMMODITIES

The FAO report also provided forecasts for the markets of some major food commodities. It said that food commodity markets tend to exhibit a "well-balanced" situation at the global level for nearly all the commodities covered in the report, although in some cases prospects at the country or regional level may diverge from this positive outlook.

FAO said that its latest outlook for global cereal supply and demand in 2017/18 remains favourable as demand is projected to fall slightly short of the anticipated production level, allowing global stocks to remain around their record-high opening levels.

FAO currently forecasts world cereal production in 2017 at 2,594 million tonnes, 5 million tonnes lower than the May forecast and down 14.1 million tonnes (0.5 percent) year-on-year.

World cereal utilization in 2017/18 is projected at a record level of 2,584 million tonnes, up 13 million tonnes (0.5 percent) from 2016/17.

This forecast stands 11 million tonnes below May expectations, largely reflecting downward adjustments made to historical wheat and maize feed estimates, particularly for China.

On an annual basis, total wheat utilization is projected to decline by 0.4 percent from 2016/17, whereas the total uses of coarse grains and rice are expected to grow by 0.8 percent and 1.2 percent, respectively.

FAO has forecast world wheat production to fall from last year's record level in 2017. It said however that aided by large carryover stocks, global wheat markets should remain adequately supplied in the 2017/18 marketing season.

FAO's forecast for global wheat production in 2017 stands at 743 million tonnes, 2.2 percent below the record output of 2016. Most of the contraction rests on expected production declines in North America, the Russian Federation and Australia. At the same time, projected recoveries in the EU and North Africa have limited further decreases.

The latest forecast for global wheat trade in 2017/18 (July/June) stands at 171 million tonnes, 1.7 percent (3.0 million tonnes) down from the 2016/17 estimated record.

"Most of this reflects lower overall imports projected for Asia and Africa. In view of the anticipated contraction in world import demand in 2017/18, competition for market share among those exporters with larger supplies is set to intensify," said FAO.

The EU is expected to become the largest wheat exporter in 2017/18, closely followed by the Russian Federation, which is also projected to increase its wheat shipments in the new season.

Based on FAO's latest supply-and-demand projections for 2017/18, by the close of 2018 crop seasons, world wheat stocks could rise to an all-time high of 257 million tonnes, up 4 percent (10 million tonnes) from their already high opening levels.

However, if China's stocks were to be excluded, the rest-of-the-world inventories at the close of 2018 seasons would stand at nearly 149 million tonnes, which implies a 5 percent decline from their opening levels.

Nonetheless, supplies are seen to remain ample in 2017/18, resulting in international prices staying subdued, especially during the first half of the season.

FAO has forecast global supplies of coarse grains to remain large in 2017/18. FAO's latest forecast for world coarse grains production in 2017 stands at 1,348 million tonnes, a near-record high and almost par with last year's peak.

"The increase mostly rests on expected rebounds in maize production in South America and southern Africa. The year-on-year gain in maize production is also forecast to counter anticipated decreases in the global barley and sorghum outputs."

World utilization of coarse grains in 2017/18 is set to reach an all-time high of 1,350 million tonnes, up 0.8 percent, or 11 million tonnes, from the estimated level for 2016/17.

Feed and industrial applications are the main drivers behind the projected increase in total utilization of coarse grains.

FAO said that although the 2017 season is still at the early stages for important Northern Hemisphere producing countries, current prospects point to world rice production exceeding the 2016 record by a small margin of 0.7 percent, reaching 502.6 million tonnes.

Barring major setbacks, strong government assistance to the rice sector is anticipated to translate into additional production expansions in Asia and West Africa.

FAO said that combined with recoveries in South America and Australia, these should more than compensate for price-driven contractions expected in the United States, Egypt and the EU, and weather-induced shortfalls in eastern and southern Africa.

After falling for two successive years, global rice trade is forecast to expand by 5 percent in 2017, as key importing countries in Asia step-up imports to quell domestic inflationary pressure and replenish reserves.

"Demand is expected to be less brisk or wane elsewhere in the world, amid weak currencies and good local availabilities."

Among exporters, India is set to retain its position as the world's leading supplier of rice in 2017, although sizeable expansions are also anticipated for Thailand and Viet Nam.

FAO's latest forecasts for the 2016/17 season (October/September) point towards an easing of the supply and demand balance for oilseeds and oil-crop products.

Driven by outstanding yield levels, global oilseed production is expected to leap to an all-time high in 2016/17. Much of the anticipated rise will be on account of soybeans, with favourable growing conditions boosting output in almost all key producing countries.

By contrast, said FAO, global rapeseed production is expected to post further losses, due to lower plantings and adverse weather, while palm oil production is set to rebound in 2017, as palms in Southeast Asia recover from the protracted effects of dry weather in 2015-2016.

World total meat production is anticipated to stagnate for a second year in a row in 2017, rising by a meagre 0.3 percent to 322 million tonnes.

Output is expected to grow in almost all countries, particularly in the United States, Brazil, India and Argentina. However, a downturn in output in China should continue to weigh on the overall trend.

By category, bovine meat is forecast to register the largest growth in production, with marginal increases for poultry and ovine (lamb and mutton) meat, and a slight fall for pigmeat.

Increased meat imports are expected, particularly in China, but also in Mexico, Chile, the Republic of Korea, Japan, the Philippines, the United Arab Emirates, Viet Nam, Iraq and Singapore.

By contrast, growth in domestic production may result in reduced purchases by the United States and the Russian Federation, with Egypt, Angola and Saudi Arabia also anticipated to buy less.

According to the report, the expansion in world exports is projected to be led by the United States and Brazil, followed by Canada, Thailand and Argentina, with sales also rising for the EU, Mexico, Ukraine, Chile and Belarus. Meanwhile, exports by Australia, China, New Zealand and India are likely to decline.

World milk production is forecast to grow by 1.4 percent to 831 million tonnes in 2017, with output set to expand in Asia and the Americas, stagnate in Europe and Africa, and decline in Oceania.

During the first part of 2017 (January to May), prices remained generally stable overall, as recovery of milk deliveries in the EU and continued growth in output in the United States lessened supply concerns.

Global trade in dairy products is projected to register a second year of modest growth in 2017, rising by 1 percent to 71.8 million tonnes of milk equivalent. Continued recovery in imports by China, following the substantial drop sustained in 2015, is forecast to be the main engine for growth.

The EU, the United States, Argentina and Canada are the main exporting countries expected to see increased sales, while New Zealand, Australia and Switzerland are forecast to experience a retrenchment in shipments.

"Sustained milk output in the EU and a rise in production in the United States are anticipated to be the most dynamic factors affecting the international market in 2017."

FAO has forecast global fish production to grow by 1.1 percent in 2017, approximately in line with the long-term trend. Stagnating capture fisheries production continues to contrast with an aquaculture sector that is growing consistently at some 4 to 5 percent per year.

"The contrast between the lack of growth in traded volumes over the last three years and the steady increase in total production, points to strong growth in the domestic market demand of major seafood producing countries, particularly in the developing world."

In the longer term, the upward price trend is being driven by strong growth in global demand for fish and fishery products that is outpacing supply. Much of this growth can be attributed to income growth in many developing regions, but robust demand is also evident in the large developed markets of the United States and the EU.

"On the demand side, seafood trade in two of the world's largest markets - the UK and United States - could be negatively impacted by the UK's impending exit from the EU and the potentially protectionist trade policy decisions of the current US administration."

More broadly, early indications in 2017 suggest that political uncertainty in multiple world regions is suppressing growth in international seafood trade, with the total annual value of seafood trade expected to decline by 1 percent in US dollar terms, said FAO. +

 


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